Why Keeping Old Credit Card Accounts Active Can Boost Your Credit Score

When it comes to maintaining a healthy credit score, many people wonder if keeping old credit card accounts open and active is beneficial. The answer lies primarily in understanding the impact on financial ratios and credit history.

One of the most significant factors in determining your credit score is your debt to credit ratio, also known as the utilization rate. This ratio is calculated by comparing the total of your credit card balances to your total credit limit. The lower your utilization rate, the better your score tends to be.

How Keeping Old Accounts Affects the Debt to Credit Ratio

Keeping old credit card accounts active typically increases your total credit limit without significantly raising your current debt balance. As a result, your debt to credit ratio drops, making your credit look stronger. Closing these accounts can have the opposite effect, as your total credit limit shrinks, and the same debt balance would then account for a larger percentage of your available credit. This, in turn, can negatively impact your credit score.

It's important to note that while these accounts remain on your credit report for 10 years (even after the account is closed), they can still influence your credit utilization for as long as they are active. This is why maintaining these accounts could be beneficial, especially for those approaching the 10-year mark.

Benefits of Active Old Credit Card Accounts

In addition to the debt to credit ratio, having older, active credit card accounts can also positively impact other aspects of your credit score. These accounts show a proven history of responsible credit management, which is highly valued by credit scoring algorithms. Even if the account has no recent activity, a long and positive credit history can still boost your score.

Credit Utilization: Older accounts that have a zero balance or a small balance can improve your overall credit utilization because they contribute to a higher overall credit limit.

Payment History: Any account that is in good standing and has never been delinquent is a positive indicator of your creditworthiness.

Credit Mix: Having a variety of credit types on your report (such as credit cards, installment loans, and mortgages) can positively affect your score.

Strategies for Keeping Old Credit Card Accounts Active

While you might be tempted to close old accounts for simplicity, maintaining them can provide long-term benefits. Here are some strategies to keep your old credit card accounts active:

Auto-Draft for Minimum Balance: Use services like Plentifund to charge a small amount to your credit card every six months. This ensures that your account remains active without incurring significant charges.

Regular Purchases: Regularly use the card for small purchases, such as buying a coffee or a meal, to maintain activity.

Annual Fee Balance: If the card has an annual fee but no rewards, keep a small balance on the card to cover the fee, ensuring the account remains open.

By keeping your old credit card accounts active, you can mitigate the risk of negative impacts on your credit score and enhance the positive aspects that contribute to a healthy credit history.

Remember, maintaining good credit practices isn't just about keeping old accounts open; it's about responsible financial management and maintaining a positive credit profile over time.